Growing Your Markets

Asked For A Discount? Raise Your Price

Does your sales force discount more than you would like? Does it need to be that way? Consider this true story.

Pat was in a new territory selling computerized switches at an average price of $150,000. It took only a month to find a prospect who literally wrote and held out a check for a $187,000. Pat refused it.

The prospect was William, who ran his high volume electronics company in an intensely personal way. He is the kind who spends nights on the couch in his office. The only time he would give Pat was at 10 p.m. Friday.

William wanted Pat's switch, but at a discount. William's way of offering to buy was to write a check on the spot from his personal checkbook, but for $17,000 below Pat's price.

As Direct Marketing professionals, we use DM to get to high-tech decision makers like William. We work to be cost effective. We measure cost per lead, cost per sale, the effectiveness of lists. We measure down to the cent.

Then, the salesperson sometimes discounts away thousands of dollars. Does it need to be this way?

No, it does not. Pat got this deal, got it that night, and for $230,000. Just as important, the customer thought he got a great deal. Your team can do the same, and DM can play a part.

Raising The Price When Asked For A Discount

Pat's company used a mail and phone Direct Marketing campaign to get to William. Here is where Pat changed the rules.

Most DM leads your reps to a situation where they focus on their own needs and on your company. The mail or phone campaign creates product or company interest in the mind of your prospect, and the prospect gives your rep a few minutes to expand on it. The prospect expects your salesperson to talk about the product, and your rep is ready to do exactly that.

Pat didn't. The maxim asks: "If we all come with two ears, two eyes, and one mouth, what do we always keep running?" Pat asked about William's business. Not about how the switch would fit, but about the core business. Then Pat shut up and listened.

Pat was looking for two things that DM doesn't do well. Pat wanted to find both the hot buttons of the owner and the places where software would make a difference. After listening for about 30 seconds, Pat knew that William would want a discount. Software was the key to avoiding it, and Pat planned to get a higher margin.

The best way Pat knows to do that is to understand the business, and Pat used questions designed to make sure that the owner learned as much as Pat did. Both learned a lot from that conversation. But, Pat wanted to know things William didn't.

The Next Steps - Survey and Design Session

Pat went to six key managers and two key salespeople and asked them about the business, seeking information that the owner might not have. There was, and always will be, plenty of this. It took four hours, but Pat left knowing the business inside out.

That Friday night William had his defenses up, waiting to be sold. But Pat's first response was to talk about key levers for William's business.

Stop here and ask yourself: How would you react to this? Most of us would do what William did, get very interested in finding new knowledge.

Pat knew the business' opportunities very well and described some benefits that the firm could use. Pat did not describe the software, only the benefits and the cost to get that benefit. William started to weigh those costs against the benefits. Although he asked about the software, Pat could see that he really didn't care. What William cared about was what the benefit would do to his business.

At the end of the session, Pat totaled up the benefits, and the costs, and asked for the $203,000. This is when William smiled and wrote out the check for a $187,000 switch.

Pat said no.

The Close

Pat's area manager was there as well. It was Fred's first call with Pat and it was a struggle but Fred kept quiet. He watched and thought about how he might have to fire Pat on Monday.

But Pat said that William could have an even better deal. By moving up to the next larger platform, William's business could have access to software that William wanted his business to have. Pat suggested that list price on that configuration would be $280,000. Pat offered to take a check for that machine at a price of $230,000 and try to get it approved over the weekend.

Fred was doing math in his head. Most of the additional price was high margin software. In fact, the discounted $230,000 deal had more margin than the original $203,000 package at full price! It was a great deal for the company, Fred knew he could approve it.

William did his own math. He wanted the software's benefits, and knew it would help his business do things worth well more than $43,000 difference. William knew it was a good deal for his company.

Pat knew it too. The close was a simple question: "Is this a good deal for your business?"

Pat and Fred walked out with a check for a high margin deal. William became one of Pat's biggest references.

Using DM to Reduce Discounting

This worked because Pat used a process to sell the business benefits, not the product features. You can use DM to help your reps do the same. The process is simple (please see the Sidebar) and the DM steps are simple as well.

The function of a Direct Marketing piece or call is to create interest leading to action. That interest needn't be in your product. It might be in your ability to change or improve something about the prospect's job or company. Instead of focusing your marketing on the needs of the product division, you can use DM to focus the marketing on the needs of the target and his or her business.

These needs may be job focused. For instance, you might have an ATM switch that has great routing software. What the customer buys is not always that routing, but the business benefit of needing less work to keep costs down and reliability up.

Or you might have a 3.5" drive with substantially better MTBF. You want to sell it to PC manufacturers. The benefits to present could be technical specs, or they could be the business' ability to increase the sales of the PC that the disk goes into. Which will help your customer's business more? If you can prepare your prospect so the rep can discuss this, you will make it possible to raise prices when asked for a discount.

If you want to support your own reps using that sales process and raising prices, lead them with DM that focuses the rep and the customer on the business, not the product. Then get ready to raise margins.

Sidebar - The Seven Step Sales Process

Pat followed a basic sales process that enables a sales person to raise the margins of a high tech deal. The process runs something like this:

Step 1 is cold calls, whether from referrals or a list.

Step 2 is the introductory call. Where most of us spend this call talking about us, Pat gives a short description of what the company has done for others and quickly goes to the problem that the prospect needs resolved.

The problem the prospect needs resolved is the only thing that really matters. His or her most important problem is paramount above all, even if it does not directly involve our product. Pat works to find that.

Step 3 is to survey the stakeholders. Pat, as an outsider, talks to the key stakeholders in the operation to get a view of the problem from several sides. This is a key step. The whole picture leads to the whole solution.

Step 4 is a design session. Pat wants buy in from the stakeholders or stakeholders so that the work actually results in solution, not just a nice binder. In this session Pat shows these key people what came out of the survey, and how the results might define the problem. These become the success criteria for the project.

Now, Pat and the customer are focused on solutions and not on costs and fees. This is key to avoiding last minute discounts and building margin.

At the end of the design session, the stakeholders have defined the severity of the issue, the need for solution, the criteria for measuring success, and a plan to solve it. The costs are a small part of the discussion. They are insignificant compared to the value of resolving the problem.

Step 5 is to document the meeting. This becomes the proposal.

Step 6 is to get a contract both parties like. If Pat has done a good job at identifying the most important problem and showing a path to resolution, customer executives want to bypass this step. For important issues, who wants to slow for papers?

Step 7 is to do the work, and follow up.

Contact the author for more detail on the steps, but remember that the principle is simple. Focus all your marketing on the customer's business and not yours. In a short while, you can return to high margin sales.

This piece is similar to the column that appeared in DM News. It is copyright 1996 by the Meyer Group, all rights reserved.